Economics for Manager

This document provides study material and solved assignments for the Economics for Manager course. It includes topics such as production technology, market equilibrium, demand and supply, mining industry strategies, exchange rates, and reference prices.

Running Head: ECONOMICS FOR MANAGER
Economics for Manager
Name of Student:
Name of University:
Author’s note:

1ECONOMICS FOR MANAGER
Table of Contents
Answer: 1.........................................................................................................................................2
Answer: 2.........................................................................................................................................3
Answer: 3.........................................................................................................................................5
Answer: 4.........................................................................................................................................6
Answer: 5.........................................................................................................................................7
Answer: 6.........................................................................................................................................9
Answer: 7.......................................................................................................................................10
Reference List................................................................................................................................12

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Answer: 1
The production technology of the manufacturing firm is represented by a learning curve.
Every time the firm increase the production by one unit, their costs decrease by 10%. The first
unit costs them $284 to produce. Given below is a cost table representing the cost up to 15 units.
The marginal cost is also estimated.
Units Cost Marginal cost
1 284 0
2 255.6 28.4
3 230.04 25.56
4 207.04 23
5 186.33 20.71
6 167.7 18.63
7 150.93 16.77
8 135.84 15.09
9 122.26 13.58
10 110.03 12.23
11 99.03 11
12 89.13 9.9
13 80.22 8.91
14 72.2 8.02
15 64.98 7.22
Table1: Cost incurred by the firm
Total cost=Sum of cost of 15 units of the commodity produced = $ (284 + 255.6 + 230.04 +
207.04 + 186.33 + 167.7 + 150.93 + 135.84 + 122.26 + 110.03 + 99.03 + 89.13 + 80.22 + 72.2 +
64.98) = $2255.33
Average cost = Total cost/ Total units = $2255.33/15 = $150.36
If they receive a proposal to produce and sell 10 units, the break-even price would be $110.03.
The break-even price for 12 units is $89.13.

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0 2 4 6 8 10 12 14 16
0
50
100
150
200
250
300
Learning Curve
Units
Cost
Figure1: Learning curve to represent the cost structure of the firm
Source: (As created by author)
The learning curve represents the amount if work done by learning. As the firms produce
more output, they become more experienced and understand the ways to make it such that the
cost of production goes down by 10%. Thus, the learning curve is downward sloping showing a
negative relation, as the amount of goods produced goes up, the production cost decreases
(Zhang et al. 2013).
Answer: 2
Assuming that the market for marker pen is competitive and includes no transaction cost.
Twelve suppliers and buyers are willing to sell pen at some specified prices. Below given is the
table to show the quantity demanded at each price.

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Quantit
y
Price of
suppliers($)
Price of
consumers($)
1 30 6
2 29 8
3 27 10
4 26 12
5 25 16
6 24 18
7 23 19
8 20 20
9 16 23
10 15 26
11 13 28
12 12 29
Table2: Price determined by suppliers and consumers at each quantity level
0 2 4 6 8 10 12 14
0
5
10
15
20
25
30
35
Market Equilibrium Graph
Price of suppliers Price of consumers
Quantity
Price
Figure 2: Market equilibrium level of quantity demanded by suppliers and consumers
Source: (As created by author)

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At equilibrium, the price determined by suppliers is equal to the price determined by
consumers. The equilibrium price is $20 and the equilibrium quantity is the quantity equivalent
at $20, which is 8units (Zhang, Chiang and Liang 2014).
According to the economic law of demand, as price rises the quantity demanded goes
down. The law of supply says that a rise in equilibrium price leads to a rise in the quantity
supplied. At Price $29, the quantity demanded by the suppliers is 2 units while the quantity
demanded by the consumers is 12 units. There is excess of demand which will lead to a shortage
in supply.
Answer: 3
On Valentine’s Day, the demand for roses is very high. Roses are considered cheaper
with respect to chocolates and greeting cards. Valentine’s Day is considered as the day of love.
People make sweet gestures to their loved ones (Zeuthen 2018). Giving chocolates and greeting
cards are considered very common as throughout the year people eat chocolate and get greeting
cards. Different colors of rose has a different significance such as red to symbolize romantic
love, courage, respect; white as youthfulness, purity, true love. However, supply cannot be
changed overnight as rose production needs time and has a high cost of production.

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Figure 3: Rise in price due to excess demand
Source: (Mankiw 2014)
Excess demand shifts equilibrium price upwards from P to P* and equilibrium quantity
from Q to Q* due rightward shift in demand curve from Demand to Demand*. Although the
demand for chocolates and greeting cards increases on Valentine’s Day, the extent to which
demand for roses go up is much lower than that of chocolates or greeting cards. Moreover,
people make chocolates and greeting cards by themselves and so the demand is relatively lower,
making the price to go extremely high for roses (Varian 2014).
Answer: 4
A competitive firm is characterized by a large number of buyers and sellers who sell
homogenous products where neither buyers nor sellers has influence over the market price.
Whereas, in monopoly markets there is only a single seller with huge number of products selling
goods which has no substitute (Sheehan and Gregory 2013). They have full control over market
price and the quantity to be produced. Competitive firms are price takers while monopoly firms

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are price seller. Monopolist charges high price to generate bigger profits. Entry of new firms is
blocked due to requirement of legal documents, huge capital investment and market research in
case of monopoly. Any new firm can enter the perfectly competitive market due to lack of
barriers, availability of many options and customers can easily switch their firms.
Perfectly competitive markets have higher elastic demand curve compared to monopoly
markets in the long run. When there is no barrier to entry, new entrants will enter in the market
and fight with the profit margin of other firms as they have similar customers. Availability of
close substitutes allows customers to change their current firm making the firms to earn zero
economic profit in the long run. In case of monopoly markets, entry of new firms is blocked so
firms keep raising the equilibrium price and benefit from the higher revenue level. Although in
long new entrants are able to enter the market, yet the level of substitutability is much lower
forcing the people to use that commodity leading to inelastic demand curve to shift a little bit
towards elastic demand curve.
Answer: 5
Australia’s mining is prime contributor to the economy with export income, employment
and royalty payment. The country has high mineral exports leading it to 35 percent of total
exports of Australia. The mining industry is facing a lot of competition from international
markets which can be improved using the following strategies (Kim 2015).
Productivity levers- Australian companies have tried to uplift the productivity in periods
of downturn. The mining companies are engaged in improving the efficiency of the cost of
production by keeping in mind about the amount of productive output to be obtained. The
objective is to achieve the same level of output with lower amount of inputs and capital. Reports

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have evidently shown how the mining cycles have continuously lowered cost as a part of the
down cycle. Yet, the learnings are immediately lost in periods of next up cycle as capital is
already available.
Targeting technology- Technology is the most obvious input to be used for the uplifting
the productivity and gather market competitiveness (Manalo, Perera and Rees 2015). Most of the
tools that could be approached by the mining industry over the past few decades consists of the
autonomous equipment, use of cloud based software and remote operating centres. The iron ore
industry has been on the fore front for using the autonomous trucks that makes the work simpler
by promoting efficiency. The role is not only dependent on the information technologies but on
chemical technologies that is to be developed in the mining industries. There is need of
technology transfer from manufacturing sector to pharmaceutical sector with appropriate
research and learning.
Innovative culture- An innovative market culture is essential during periods of market
down turn as well as during period of booms. Producers structure the plan of achieving the
maximum profit by keeping a proper structure for the industry. This is done by giving credits to
employees, developing new techniques and training the workers to act on it (Downes, Hanslow
and Tulip 2014). A lot can be done without investing huge amount of money and by sourcing the
right ways to obtain it. As managers devote more time to establish the work environment such
that workers can work happily and eject new tools to develop the work place. Collaboration of
mining companies with new technologies and techniques by understanding the system in which
other firms work. Building new strategies and setting of goals to master the art of achieving a
desired target.

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Answer: 6
In the last few years, the Australian dollar (AUD) has been appreciated against the US
dollar. When the Australian dollar is appreciated, Australian currency gains its value relative to
prices leading to the purchase a given amount of goods.
1) The rate of exchange affects the Australian economy due to influence on trade and export
either directly or indirectly (Cooter and Ulen 2016). An appreciation of AUD makes the price of
goods and service higher compared to those produced overseas. As goods and services become
expensive, export volume goes down and import volume goes up. Demand for import goods
increases as consumers can pay lesser price when imported from other countries.
Imported goods for Australia become relatively inexpensive due to appreciation. Residents
transform their consumption pattern to import more goods from foreign countries, causing a fall
in the amount of imports. However, this rise in demand for imported goods has made imported
goods relatively cheaper.
As a result, relative price of imported goods decreased reflecting cut in transport and
technology (Cole and Nightingale 2016).Lower Australian dollar provides quality growth in the
tourism industry. An appreciation of AUD means tourists has to pay bigger dollars as the
purchasing power will go down once tourists enter Australia. Tourists are now required to
change less of the foreign currency to pay for their meals. As a result, it is expected that the
tourism industry is going to experience a recession in the upcoming years.
2) A country by country approach within East Asia, Japan was reported to be the second
largest funding volume behind South Korea having a total of 348.65 million US dollars. Japan

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has been the largest Australia’s trade destination country. Rapid improvement in AUD to 72.00
levels against Japanese Yen with a trip back to 71.10.
Australia’s construction has worsened due to fall in revenues by 3.8 percent. Japan has a
weak Price Index which affected Yen even further (Chen and Schwartz 2013). Fall in export of
Japan effected Japan’s economy with a depreciation in Japan’s AUD. Appreciation of AUD
meant that imports from Japan became less expensive leading to a rise in Japan’s revenue.
However, revenue of Australia went down due to fall in export to Japan.
Answer: 7
Reference price are the conceived price as part of psychological pricing when people plan
to buy product and calculate the amount to be spent on each item with reference to total budget.
This perception assists individuals to interpret, organize and choose among various goods in
order to create a meaningful picture (Cavalli and Naimzada 2015). The information and
perception has a huge effect on the taste and preference of goods and services which leads to
obvious changes in the overall market demand and supply of that particular commodity.
If the distance between the original price and perception price is big, people prefer less of
the consumer good. If the perception price is higher than the original one, consumers demand
more of it while the opposite is also true. Consumers derive their reference by personal
understanding, existing knowledge of prices and presence of substitutes, annotations and their
subjective interpretation. However, the focal point of reference are dependent on internal or
external references.
Internal referencing comes by calculation of price in mind on behalf of past buying
experiences. External referencing comes from the external sources which comers from

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advertising and marketing strategies of the product (Black, Chapman and Windsor 2017). While
considering price, customers consider the range of prices of its substitutes and quality of product.
Consumer products are those that are required daily. Consumers mostly prefer a reasonable price
that is required daily by keeping in track of the income. Except for some customers who have a
preference for high priced goods.

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Reference List
Black, S., Chapman, B. and Windsor, C., 2017. Australian Capital Flows. RBA Bulletin, June,
pp.23-34.
Cavalli, F. and Naimzada, A., 2015. Effect of price elasticity of demand in monopolies with
gradient adjustment. Chaos, Solitons & Fractals, 76, pp.47-55.
Chen, Y. and Schwartz, M., 2013. Product innovation incentives: Monopoly vs. competition.
Journal of Economics & Management Strategy, 22(3), pp.513-528.
Cole, D. and Nightingale, S., 2016. Sensitivity of Australian trade to the exchange rate. RBA
Bulletin, September, pp.13-20.
Cooter, R. and Ulen, T., 2016. Law and economics. Addison-Wesley.
Downes, P.M., Hanslow, K. and Tulip, P., 2014. The effect of the mining boom on the
Australian economy. Reserve Bank of Australia research discussion paper, (2014-08).
Kim, S.J., 2015. Australian dollar carry trades: time varying probabilities and determinants.
International Review of Financial Analysis, 40, pp.64-75.
Manalo, J., Perera, D. and Rees, D.M., 2015. Exchange rate movements and the Australian
economy. Economic Modelling, 47, pp.53-62.
Mankiw, N.G., 2014. Principles of economics. Cengage Learning.
Sheehan, P. and Gregory, R.G., 2013. The resources boom and economic policy in the long run.
Australian Economic Review, 46(2), pp.121-139.

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Varian, H.R., 2014. Intermediate microeconomics with calculus: a modern approach. WW
Norton & Company.
Zeuthen, F., 2018. Problems of monopoly and economic warfare. Routledge.
Zhang, J., Chiang, W.Y.K. and Liang, L., 2014. Strategic pricing with reference effects in a
competitive supply chain. Omega, 44, pp.126-135.
Zhang, J., Gou, Q., Liang, L. and Huang, Z., 2013. Supply chain coordination through
cooperative advertising with reference price effect. Omega, 41(2), pp.345-353.

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